The battle for supremacy in the Japanese wine market.

Very interesting article (at least for me, considering that I work in the industry in Japan) on how New World wines are gaining more and more share in this market.

The April 11th issue of Shuhan News (number 1875) reports datas from the Statistics Center of the Ministry of Internal Affairs, giving a very detailed picture of the wine maket in the first two months of 2015.

Concerning still wines in container smaller than 2L, in February France has made a comeback, gaining an upper hand with 3.367.872L of wine imported, with Chile second at 3.287.340L. Italy, alas is just third (2.382.493L), followed by Spain (1.986.506L), USA(547.142L), Australia (429.242L), Germany and other minor players. However Chile is still on the top if we consider the total of the first two months, with 7.651.588L against France 6.913.416L.

In the “heavyweight category” (wine stored in containers holding between 2 and 150L), Chile, Spain and USA are having a thrilling head to head: the first reached the top in February (286.089L against 279.864L and 253.104L), but the second and third are still ahead if we include January results, with 584.422L for Spain and 539.953L for the US (Chile is not that far though, at 532.593L). Italy and France follow, but their share it’s just a fraction.

Up to this point Chile seems to be just one of the main players, but it’s in the bulk segment (wine inside containers bigger than 150L) that its supremacy becomes evident, with a total of 3.517.961L imported since January 1st, well ahead USA 782.289L. South Africa shows a mildly surprising performance here, being third at 399.015.

Fortified wines category is of course limited to a few countries: Spain or Portugal? I would have said Spain, but the answer is Portugal and for a good margin (32.931L in February, 53.210L in the first two months, against 15.731L and 26.508L). However the declining trend of portuguese wines should not be taken lightly, as the volume is down to 70.8 when compared to last year performance in the same period (Spain is down too, but stopped at 96.3%). There is not much behind, apart from France, Italy and a bit of Greece.

Finally let’s turn to sparkling wines: here, as you can imagine, France sits on the top of the ladder (February: 833.040L, Jan-Feb: 1.720.093L), increasing its share by 6.4% relative to the first two months of 2015. Very good performance also for our runner-up, Spain, quite below France, but improving, while second runner-up Italy’s market shrank by 25% compared to January and February 2014. Fourth place for Chile, followed by Australia, Argentina, Germany, South Africa and, quite surprisingly, Mexico.

I would like to add just a personal note: Chile wine is very popular in Japan, and its rise seems unstoppable. At present it is still quite novel, consistent and affordable, all very important qualities in a country facing inflation like Japan. One day however Chile wine industry will need to rethink its role in this market: for now it is just the good value wine which you’ll choose if you are tight on budget, reliable, but not as fashionable as french, italian or even american wines (spanish wine image is a bit more mixed). When this country market will reach maturity towards Chile wine, producers and exporters will have to persuade consumers that they are not just the honest cheap bulk wine of old, but that they can offer also premium quality and a smart image, to appeal new high-income drinkers. Up to that day beware of Chile!


Some words on alcohol Minimum Unit Pricing

Another WSET assignment = new post!

This time we were asked to talk about Minimum Unit Pricing on alcohol by taking inspiration from the following articles

It is very difficult to make a research on these topic, because, as long as I could read, many sources will have a vested interest in the topic or an ideological bias, meaning that an author will first determine his position and then search for proof supporting his view.

We can find two different approaches supporting minimum alcohol prices, one theoretical and one practical: one bases its assumptions on the Sheffield Alcohol Policy Model, the other brings examples where some kind of price regulation on alcohol has been applied and successfully reduced alcohol related harm.

The Sheffield Alcohol Policy Model is a mathematical model claiming to be able to precisely evaluate the effects of minimum alcohol price on alcohol consumption and related disease, which is believed to be very tight. In its application on the Scotland case for example the authors maintain that, looking at the overall population, a minimum price of 40p per unit will exactly save 29 lives in the first year, reducing violent crimes by 3000 and days of absence from work by 9.5 days (page 138). The model assumes that heavy drinkers will reduce alcohol consumption when prices rise, for they will always tend to buy the cheapest booze possible (they don’t drink to taste, they just want to get drunk) and that higher prices will reduce consumption. The model has been extensively used by the proponents of minimum alcohol pricing and is more or less the base of Dr. Sarah Wollaston reasoning.

The example of Canada on the other hand look at the experience of this nation: in British Columbia, a 10% increase in average minimum prices in the last 8 years has led to a 3.4% decrease in alcohol consumption and a 9% drop in alcohol related hospitalization. In Saskatchewan the same increase caused a 8.4% fall in consumption and an alleged significant shift to lower alcohol drink.

Science and evidence thus support this kind of policy? Not exactly.

The Sheffield Model has been widely criticized for some of its implied assumptions . This commentary is especially illuminating. First of all there is evidence that a person dependent from alcohol will not stop buying booze when the price rises, but just shift to cheaper drinks. Second, the availability of alcohol on the market is not necessarily related to volume of consumption: the author brings the example of France, where people are drinking less and less, even though quantity on the market has not changed.

Moreover the model does not take into account factors like illegal alcohol production and trade which could thrive if the legal market is limited or the indirect effect that another tax would have on poorer households. Data sources are also questionable, for adjusted figures based on the English market are used to make forecasts in the Scotland society, not very correct for a model which tries to predict the number of lives saved by MUP to the single digit.

Finally, the model does not consider that alcohol consumption in the UK has already decreased from 2006, the year from which the data where sourced, by 17.5%, even though none of its beneficial effects has been reported so far.

The example of Canada on the other hand is not that relevant when applied to other societies because the relation between price, per capita consumption and harmful consumption is far from being clear and uniform over different countries. The I already cited France, but we could look at the case of Denmark, whose decline in alcohol related problems coincided with a reduction by 45% the tax on spirits in 2003. It is also curious to see that, according to WHO statistics, tightly regulated Canada has an higher per capita consumption of alcohol than relaxed Italy and Japan which makes me wonder if the problem lies more on a cultural plane than in the pocket of the consumer.

It seems thus that not much is supporting the minimum unit pricing position: a flawed model and contrasting evidence are not enough to back such policy.

For all these reasons, if asked by Japanese government on the topic, I will not encourage any additional price policy: besides the highly unpredictable effects it could have, the timing could not be worse because, as I reported above, alcohol consumption is already decreasing and sales tax, which jumped up from 5% to 8% in April 2014, is already destined to rise again in 2017 to 10%. Adding further burden to already worn out consumers will mean pulling the rope too much.

Moreover alcoholic drinks are not that cheap in Japan when compared to countries where MUP has been introduced, primarily because of sustained levels of existing liquor excises and custom tariffs.

My thoughts on taxation in UK, France and India

I wrote a brief article as an activity for the Wset diploma course. I am publishing it here, hoping that you will find it useful. The assignment was as follows.

Have a look at the following tables on wine taxes in the USA and EU:

Wine-Searcher: USA Sales Taxes on WineWine-Searcher: EU Excise Rates and VAT on Wine

Read through the following articles which discuss wine taxes in France, UK and India:

France 24: French wine tax plans will ‘cork the industry’Bauduc Blog: Where the money goes on a bottle of wine in the UKBusiness Standard: India offers to slash import duty on wines, spirits to 40%

How do the levels of tax compare between these 3 markets?  What impact do you feel these have on the local wine markets here?  What impact are they intended to have?

How do the levels of taxation compare where you live/where you are taking your examinations?  How does this affect the prices of wine local to you?

The levels of tax in the 3 markets of UK, France and India are different and try to answer to peculiar issues in the respective markets. 

UK and France are both members of the European Union, their VAT on wine is identical (20%), but the excise rate is much lower in the latter (0.33/0.83 euros for still/sparkling wines in France and 30.07/38.52 for the same category in UK). Given that the excise rate is a tax applied on production of a good (vs sales tax which is applied to sale), a state will tend to lower it for a particular product when promoting the sector producing that specific commodity. This is what happens in France. 

India situation in this case is much more complicated because, being a federation, VAT and excise will greatly vary between the governments. A report by the USDA Foreign Agricultural Service (page 5 and 6) brings the example of Maharashtra, India’s main wine producing state, where a series of taxes have been put in place to artificially rise the cost of imported wines, exempting local producers. 

A very similar point can be made if we look at customs duty, which are the focus of the the article from Business Standard. UK and France (and the rest of EU as well) have reasonably low custom taxes on wine, up to euros 32.00/hl, when special agreements are not in place. This may be basically because Europe has a strong wine producing sector and does not have much to fear from non-EU producing regions. Even though Australia, Chile, USA or New Zealand can offer good value, the custom duty will always be lower (that is, zero) for french, italian or spanish wine and the transport much cheaper. On the other hand India’s custom rate is still at 150% and will decrease to 30% at best. The unwillingness to lower this barrier is easily understandable in the words of Indian wine academy Subhash Arora who, quoting the article, said: “A reduction of duties to 40 per cent across the board means opening the gate for cheap imports. This way, the Indian wine industry will perish and this will also impact the farming community”. Indian wine as much to fear from Europe, in terms of quality, price and fame. Resistance is understandable.

In Japan, where I live, the levels of taxation for wine are as follows:

8% sales tax (will become 10% next year).
For still wines, a custom tariff of 15% or 125 yen/l whichever is less, with a minimum of 67 yen/l.
For sparkling wines , a custom tariff of 182 yen/l.
For fortified wines , a custom tariff of 112 yen/l.
A liquor tax of 80.000 yen/kl for both sparkling and still not fortified wines 
A liquor tax of 120.000 yen/kl for fortified wines (which are considered liqueur) +10.000 yen/kl per degrees by volume when alcoholic degree exceeds 12% (so a 15% alcohol port will be at 150.000 yen/kl). 

If you think this is complicated you should give a look at the taxation for beer, which is calculated taking into account the malt percentage in the brew.

If you consider that Japan does not produce much wine by itself, this means that even a barely drinkable bottle of wine will be at 500 yen (at the moment 3.89 euros/4.21 dollars/2.81 pounds), though the majority of the wine sold will be between 500 and 1000 yen, as reported by the latest issue of Shuhan News. Compared to my home country, Italy, where for 3 euros you can by a very honest bottle, it is a very hard life for wine lovers in Japan.